Tuesday, April 14, 2009

Early Zero Hedge readers are aware that I have often discussed the benefits of the basis trade in the context of an improvement in overall market liquidity, especially at the pronounced mid/late-January negative basis initiation. I would caution readers who have established this position to be very careful in the coming days with any established bases, and prudent readers may do well to trim exposure here, and take the 200bps average pick over the past 3 months. As DE Shaw had put it poetically "selling puts on market liquidity" via basis participation, given recent Zero Hedge disclosures, has very unappealing risk/return parameters. There is likely easier money to be made elsewhere.
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